May 31, 2025 Market Update

Stocks fluctuated once again last week as investors weighed mixed economic data against hopes for a soft landing.  Consumer sentiment rose modestly, while jobless claims ticked up, offering signs that the labor market may be cooling.  At the same time, personal income rose 0.8% in April, surpassing market expectations.  A strong earnings report from Nvidia boosted tech shares and renewed investor enthusiasm for AI and semiconductor companies.  When all was said and done, all four of the major indexes finished with respectable gains.

In the bond market, yields remain elevated, particularly on the long end of the curve, reflecting Mr. Market’s concerns about the budgetary impact of the “One Big Beautiful Bill Act” and broader worries about the long-term sustainability of government borrowing.  Rising deficits, inflation pressures, and the absence of near-term Fed cuts have contributed to a steepening yield curve and waning demand for long-duration bonds.

On a more positive note, “super-core” PCE inflation — a measure closely watched by Fed Chair Powell — fell below 3% in April.  That could increase the likelihood of the Fed cutting interest rates sooner than previously expected.

With the Fed’s June meeting approaching and trade tensions reemerging, many equity and fixed-income investors appear reluctant to take strong directional bets.  Market movements, it seems, are being driven more by short-term positioning than by conviction in the long-term outlook.

A federal court ruling this week called into question the legality of sweeping tariffs the Trump administration imposed in early April.  The U.S. Court of International Trade ruled that the White House overstepped its authority in applying “reciprocal” tariffs to nearly all trading partners.  While most of these levies had already been suspended pending negotiations, the decision injects fresh uncertainty into the outlook for trade policy just weeks before they were scheduled to resume.

The administration wasted no time signaling its intent to appeal, and the ultimate impact may be muted, given the range of alternative tools available to the executive branch.  Equity and bond markets took the development in stride, having already priced in a high level of policy unpredictability.

Still, the ruling complicates investors’ ability to assess the potential implications of the Trump administration’s policies on the economy and corporate profits.  As a result, markets may remain volatile as developments on the trade front continue to unfold.

That’s all for now.  Have a great weekend and invest wisely, my friends.